Lassonde Industries Inc

Lassonde Industries Inc (TSX: LAS.A) operates as a developer, manufacturer, and distributor of ready-to-drink fruit and vegetable juices and drinks. Apart from these, the group is also a producer of store brand shelf-stable fruit juices and drinks in the United States, along with a principal producer of cranberry sauces. 

Key Highlights:

• Significant reduction in total debt: In the last few quarters, the company reported a constant decline in its total debt, which indicates prudent capital management. Moreover, a decline in total debt enhances financial flexibility and leads to lower finance costs. Notably, in Q2FY21, the company reported its total debt at CAD 188 million, which is the lowest in the last five quarters.

• Increase in dividend distribution amidst economic turbulence: Despite the ongoing sluggish economic scenario, the company has paid a higher dividend of CAD 10.608 million in H1FY21, as compared to CAD 8.632 million in pcp. The above is impressive as most of the companies have reduced or suspended their dividend payment in order to retain liquidity.
• Improving Sectoral scenario: In Q2FY21, the company witnessed an improvement in the industry sales volumes within the U.S. and Canadian fruit juice and drink segment. The trend is expected to continue for the second half of FY21. Hence, the management expects that the price of orange concentrate is likely to remain slightly higher than the previous year, supported by prudent inventory management by the company’s major supplier. Moreover, a major part of the apple concentrate supplies has been sold at a higher rate by the company, which is a key positive for the company.

Q2FY21 Financial Highlights: 

• The group announced its second-quarter results, wherein the company posted revenue of CAD 469.292 million, down from CAD 498.207 million in the previous corresponding period (pcp). The decline was primarily due to the lower income from the United Sates (CAD 247.060 million v/s CAD 303.184 million in pcp).
• Operating profit stood at CAD 29.932 million, as compared to CAD 42.658 million in Q2FY20.
• The period was marked by a lower cost of sales and a slide in Selling and administrative expense. The company reported a drastic fall in the finance expense due to a decline in the total debt.
• The company posted its net profit at CAD 19.023 million, lower than CAD 27.518 million, a year ago.

Q2FY21 Income Statement Highlights (Source: Company Report)

Risks: The group is witnessing a rise in several input costs like transportation and logistic costs, warehouse costs and certain rise in specific raw material costs. Continuation of the above trend might pose a threat to the company’s margins and cash flows.

Valuation Methodology (Illustrative): Price to Earnings

Stock Recommendation:

The company manufactures and distributes ready-to-drink juices and drinks, fruit-based snacks in the form of bars and bites, as well as frozen juice concentrates across North America and commands a significant market share. We believe the company to be benefited as the industry demand reaches to the pre-pandemic levels. We have valued the stock using the Price to Earnings based relative valuation method and have arrived at a target upside of double-digit (in percentage terms). For the said purposes, we have considered the industry (Food & Tobacco) median on an NTM basis. Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 172.00 on September 01, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Technical Price Chart (as on September 01, 2021). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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